Why a second mortgage can be dangerous?

A young middle-age single mother just left our office. She was referred by her mom. Unfortunately she was not happy with us after we told her. We did not feel comfortable working with her. She was a hard-working woman who had a first mortgage, second mortgage and piles of debt. At Robert Floris’ office, we did not offer her help because she had no exit strategy and a second mortgage can be dangerous in those instances.

Temporary Relief

If this was a temporary relief until circumstances changed, we would have been happy to assist her. But she already worked hard with two part time jobs and her prospects to increase her income were very limited. Her cash flow was already low to afford another second mortgage. The bleeding would have started immediately which is why a second mortgage can be dangerous, and we were not ready to open the cut again. When does a second mortgage make sense? Only when you have an exit strategy to get out. If you cannot get out of the mortgage within two years, you should probably consider other options. A second mortgage can be dangerous and expensive.

Second mortgages have high fees, high interest rates, and in most cases interest only payments. With rates beginning at 9% and finishing at 14%, it is a costly endeavour and reinforces our point that an exit strategy is vital.

What are some exit strategies we have seen?

• Extended maternity leave, but returning to job in line
• Job loss, but you are confident in finding alternate work.
• Health reasons in terms of an injury or illness. Clients know they will be back on their feet within a year or are expecting a payout from a lawsuit or other source.
• Emergency repairs have come up when they have a large first mortgage and they do not want to break it to incur a crippling penalty.
• Investment reasons for productive reasons. A recent client had all the government documents to legally produce marijuana. He expected a large return.
• Marriage dispute seems to be common as well where one spouse is expecting a large payout and they do not qualify without a second mortgage.

If you have questions regarding secondary financing and if it is right for you, don’t hesitate to contact me at our mortgage architects office.

Robert Floris is a Mortgage Broker. His office is located at 651 Fennell Avenue East in Hamilton, Ontario. If you would like to speak with Robert, he can be reached at 905-574-9200 #215. Alternatively, you can contact Robert here.

If you would like to apply for a mortgage online, please follow this link.